Tag Archives: investment advice

Austerity Exposes the Global Threat from Tax Havens

Leave a reply

My Comments: Unless you have been to the Cayman Islands, or happen to make far more money than you actually need to live your life, the idea of an offshore tax haven is pretty remote. You’ve heard about them, but since they are so far removed from your reality, they seem to stay under the rug. Here’s an article from the Financial Times that suggests we should pay more attention to what they represent for all of us.

By Jeffrey Sachs

The curtain has been pulled aside on the once secret world of tax havens, and the scale of abuse is nearly beyond reckoning. Week after week, Americans and Europeans worn down by budget austerity have learnt about the secret accounts of their politicians, tax evasion by leading companies and hot money destabilising the world economy. The darker truth is that these havens are not gaps in the world’s financial system; they are the system.

How many politicians and political parties have secret accounts abroad? Inevitably, given the nature of the arrangements, we cannot say for certain – but the list of those that have come to light is long. US presidential candidate Mitt Romney was found to have huge wealth in the Cayman Islands, never adequately explained. In France, Jérôme Cahuzac has resigned in disgrace from his position as budget minister following the revelation that he held a secret account in Switzerland. He has since been charged with tax fraud. Spain’s ruling party has been making payments from secret Swiss accounts for years. One senior Greek politician has been sentenced to jail for falsifying financial declarations. Many more revelations will come, especially now that investigative journalists have their hands on the records of hundreds of thousands of offshore accounts.

Groups such as Apple, Google and Starbucks have been shown in recent months to have used outlandish accounting gimmicks to shelter their profits. These include Google’s claim, approved by the US Internal Revenue Service, that its intellectual capital resides in Bermuda. There are thousands more like them working with the tax authorities to keep their money out of reach. Banks such as HSBC and UBS have been caught in the money laundering that facilitates this process.

How much tax revenue is lost to the global havens? Here, too, we can only guess but the numbers are likely to be vast. Recent estimates by the Tax Justice Network suggest that deposits are in the range of $21tn.

The havens serve countless purposes, yet not one is for the social good. They support massive tax evasion. They underpin a global system of bribery to corrupt officials. They service the accounts of drug runners, arms traders and terrorist groups. They create veils of secrecy through shell companies, which allow tax evasion, land grabs and environmental destruction.

The prime movers of the world’s tax havens are the US, Switzerland and the UK. Indeed, many of the leading havens, including the British Virgin Islands, Cayman and Bermuda, are British Overseas Territories. The secreting of trillions of dollars in the Caribbean has been undertaken with the support of America’s IRS, and with the approval of the US political class and Wall Street.

These playgrounds of the rich and powerful were largely hidden from the public’s view during the long financial boom. In the new world of austerity following the 2008 crash, however, they are increasingly seen as a cancer on the global financial system that must be excised.

The public’s animus was greatly accelerated by the Cyprus crisis. The island has for many years been a notorious secrecy-and-tax haven, especially for Russian money. Yet this was winked at rather than controlled. Then Cyprus blew up – a reminder of how an unregulated financial centre can quickly turn into a mortal threat to the world economy.

Many of the reforms that are required are obvious. All foreign bank accounts in any jurisdiction should be reported back to the national tax authorities of the account holders. Unreported incomes diverted to overseas accounts in the past should then be taxed at national rates with penalties for evasion. The thousands of hedge funds and corporations domiciled in the Caribbean for operations in the US and Europe should be required to redomicile in the US and Europe. Beneficial ownership should be disclosed on all foreign-owned companies.

Angela Merkel, the German chancellor, François Hollande, the French president, and David Cameron, the UK prime minister, have recently acknowledged the need for a serious clampdown, yet the real actions still lie ahead. Barack Obama, the US president, has spoken in the past about cracking down but has not said much recently. All eyes are now turning to US and European leaders in advance of the summits of the Group of Eight leading nations in June and the Group of 20 in September to see whether the politicians are beholden to the needs of the public or to heedless and destabilising private greed.

The writer is director of the Earth Institute and author of the forthcoming book, ‘To Move the World: JFK’s Quest for Peace’

Investor Optimism Rose in March

Leave a reply

yellow smile in field of blue frownsMy Comments: I have no idea what I’m having for supper tonight, much less how the markets are going to perform over the next several months and years.

However, assuming I haven’t left the building, I expect to eat something, and in like manner, I expect the markets to move up and down with a generally upward trend. To do otherwise would be to fly in the face of what’s happened over the past 70 plus years (mine and the markets).

If you want to see what some clients experienced over the past few years, click on the smiley face.

By Paula Aven Gladych

Investor optimism jumped 31 points in March, but not everyone is upbeat about the markets.

Retirees are not nearly as optimistic as their non-retired counterparts, according to the latest Wells Fargo/Gallup Investor and Retirement Optimism Index.

More than half of investors believe now is a good time to invest in the financial markets, up from 39 percent last quarter. Fifty-four percent of the non-retired say this is a good time to invest while 43 percent of retired investors hold this same view.

Despite a rise in the stock market in the first quarter of the year, the bulk of investors didn’t make any changes to their investments in the stock market. Only 10 percent increased their stock market investments during the first quarter.

“The emerging optimism is encouraging, but the disparity in optimism between the non-retired and retired is notable. The lack of action on the part of investors during the first quarter rally shows that people stayed the course and didn’t have a knee-jerk reaction that caused them to change their investment allocations,” said Laurie Nordquist, director of Wells Fargo Institutional Retirement and Trust.

Half of retired investors surveyed between March 14-24 say low interest rates have done a great deal or quite a lot of harm to savers and investors compared to 25 percent of non-retired investors. Nearly 70 percent of non-retired investors believe the benefits of low interest rates have outweighed the costs, but only 51 percent of retirees agree with them.

Nearly half of all investors believe that today’s low interest rates will make their retirements less comfortable, with 35 percent of retirees and 46 percent of workers fearing low rates will mean they will outlive their money in retirement. One-third of investors think low rates will force them to delay their retirement.

Housing is one area that has been positively affected by the low interest rates. A third of those surveyed said they took advantage of the rates to refinance their home.

Nearly 70 percent of those surveyed are worried they will have to pay higher federal taxes in retirement and will have a more difficult time living comfortably in retirement. Because of this, 39 percent of investors say they are more likely to seek after-tax investments.

More than 1,000 investors across the country were surveyed for this study.

Tactical Strategies Gain, as Buy and Hold Fades

Leave a reply

There appears to be a significant disconnect between those of us who have advocated a tactical approach to investing money for years from those who learned their trade during the 18 years that ran from 1982 thru 2000.

The study referenced below in the article, as it appeared in the print edition, headlined “45% of advisers surveyed … say they are applying tactical strategies.” Wow! That means that 55% are NOT using tactical strategies, which suggests to me that risk management and the avoidance of dramatic plunges when the market goes to hell is not important to them.

global investingHere at Florida Wealth Advisors, LLC we’ve been using tactical approaches to investing money for our clients for almost ten years now. And until it’s clear we are in another 18 – 20 year run like what happened in 1982 – 2000, we’ll continue to take a tactical approach.

For a better understanding of how this works, click on the image to the left that accompanies this post.

By Jeff Benjamin | InvestmentNews.com

There is nothing quite like a seismic market shift to throw financial advisers off their game.

This has been the case since the 2008-09 financial crisis, according to the latest research from Cerulli Associates Inc., which shows that advisers have been migrating away from buy and hold toward more-active strategies.

Nearly half of Cerulli’s database of more than 10,000 advisers said that they are employing some form of tactical portfolio management.

When the same survey was conducted in 2009, tactical strategies didn’t even register among respondents, according to Cerulli associate director Tyler Cloherty.

“After the financial crisis, there seemed to be a general sense that long-term strategic-allocation strategies didn’t work,” he said. “So in order to position themselves to clients, advisers started indicating that they were navigating away from risky assets and capitalizing on shorter-term opportunities.”

ALL SHAPES AND SIZES
Strategic investing comes in all shapes and sizes, but Cerulli found that 37% of advisers surveyed said that they are using a strategic allocation with a tactical overlay, and another 8% said that they are strictly tactical. In all, 45% of the respondents apply tactical strategies.

This is about where advisers have been in terms of tactical strategies ever since the initial spike, Mr. Cloherty said.

Theodore Feight, owner of Creative Financial Design, exemplifies the transition away from strategic portfolio management.

“I’m absolutely more tactical, and my clients are enjoying it,” he said.

Mr. Feight became a believer during the financial crisis, when he witnessed virtually every asset class fall in stride.

“Adjusting to tactical strategies made me go back and look at some of the stuff I was taught in the past,” he said.

These days, Mr. Feight is comfortable about setting stop orders to limit losses, and seeks out other areas of opportunity.

In the fixed-income arena, for example, he has gone from static allocations to low-yielding indexes to a more aggressive blend of high-yield-bond exchange-traded funds.

The result is a 300-basis-point increase in yield to about 5% for his fixed-income investments, Mr. Feight said.
On the equity side, he also has moved away from broad indexes to take more specific advantage of some of the higher-yielding dividend stocks, such as Altria Group Inc. (MO), Eli Lilly and Co. (LLY) and Reynolds America Inc. (RAI).

“I started doing this in 2009, and I’ve been an outlier until recently,” Mr. Feight said. “I have had a lot of people tell me I’m nuts and that I should just stick with buy and hold.”

Paul Schatz, president of Heritage Capital LLC and member of the National Association of Active Investment Managers, said that he isn’t surprised that more advisers have turned tactical since 2009.

‘ABSOLUTELY CRAZY’
“It is absolutely crazy to not have at least a portion of a portfolio actively managed at all times,” he said.

“Everybody knows that markets drop faster than they rise.”

Mr. Schatz said that he recently has begun hearing institutional managers talk about shifting back toward buy and hold now that the markets have had a strong run.

“People historically have turned to tactical after the horse already left the barn, and now that the stock market is up 125% from the bottom, people are starting to talk about buy and hold again,” he said. “To me, anytime people start talking about buy and hold being the way to go, it’s a good sign that the market is at a peak.”

Mr. Cloherty is less interested in whether advisers are moving in and out of tactical strategies at the wrong time than he is about how qualified most advisers are to execute tactical strategies.

“If you have advisers attempting to be tactical, you will have a mixed bag of performance, because a lot of it is based on their own internal decision making where there might not be a strict framework,” he said. “An asset manager or professional research team might be better suited to apply tactical strategies.”

3 Actions for Worried Investors

Leave a reply

‘Is the stock market a bubble ready to burst? No,’ say BlackRock’s investment strategists in a spring update

question-markMy Comments: All of us are looking for an edge, an insight, a clue to help us make what we hope are smart decisions about our money. These comments from someone clearly ahead of the curve that I live on may be helpful to you. The fact that Blackrock manages over $3.7T (that “T” means trillion!) suggests they know what they are talking about.

Here at Florida Wealth Advisors, we can help you interpret and implement these ideas.

By Joyce Hanson, AdvisorOne | April 15, 2013

The stock market has powered ahead of the nation’s faltering economy so far in 2013 at the same time that the Federal Reserve keeps supporting U.S. Treasuries by keeping interest rates low.

These seemingly contrary events have left investors so uncertain about what will happen next that BlackRock, the world’s largest asset manager, with $3.79 trillion under management as of Dec. 31, stepped forward Friday to offer three actions for worried investors to take.

Russ Koesterich, BlackRock chief investment strategist and iShares chief global strategist“The powerful advance of U.S. stock markets has investors asking: Do the markets have more room to run, or is a correction imminent? First, we think there is almost no chance that the pace seen in the first quarter will continue. But does that mean we’re in the middle of a bubble that will burst? The answer is no,” write Russ Koesterich (left), BlackRock chief investment strategist and iShares chief global strategist, Jeffrey Rosenberg, chief investment strategist for fixed income, and Peter Hayes, head of the municipal bonds group.

As for interest rates, Koesterich, Rosenberg and Hayes predict that rates will drift higher, but slowly and erratically.

“A number of forces are keeping a lid on interest rates, including the low net supply of fixed-income securities (due largely to Fed buying) and a strong demand among investors for yielding assets. The Federal Reserve will not reduce its pace of accommodation any time soon given still-elevated unemployment. However, stronger economic growth could lead the central bank to pull back on the pace of accommodation later this year, they write in “What’s Next in 2013? 3 Investment Actions for 2013.”

The BlackRock strategists recommend three smart ways for investors to achieve income and return this year:

1) Broaden your bond approach. “Investor demand has pushed interest rates to such lows that it presents new risks,” the BlackRock team says. They recommend that investors allocate to flexible core bond alternatives, increase exposure to credit sectors and implement long/short strategies.

Interest rates should gradually drift higher through the end of the year, with the 10-year Treasury yield ending around 2.25%, they predict. And if the Fed begins to slow down quantitative easing, yields on longer-maturity fixed-income assets such as the 10-year and the 30-year would move modestly higher as prices fall.

“In this environment, we advise protecting portfolios from the effects of increasing interest rates,” the team writes. “One way to do this would be to focus on shorter-maturity segments of the market. Additionally, we continue to suggest a focus on credit sectors of the market, including areas such as bank loans and high-yield bonds.”

2) Find new sources of income. Historically low yields within fixed income are driving investors to cast a wider net for income. The BlackRock team recommends solutions that balance income and risk, investments in nontraditional income sources and allocations to municipal bonds for tax-advantaged income.

The team favors munis particularly due to the prevailing higher-tax environment. “Munis have demonstrated lower volatility than many other areas of the fixed-income market and boast yields that, in many cases, rival Treasuries even before tax,” they write. “They can offer a better way to keep more of what you earn.”

3) Grow your wealth in unpredictable markets. “Equities remain attractive and should be the foundation for meaningful long-term growth,” write Koesterich, Rosenberg and Hayes. “However, mitigating volatility is critical.” The BlackRock team recommends allocating to “flexible, unconstrained” strategies, investing in high-quality dividend-paying equities and implementing alternative strategies.

Surprisingly, the BlackRock team was mixed on China’s outlook, saying that while it is on an economic rebound in both manufacturing and exports, “Chinese authorities are tightening credit availability once again, which could dampen growth prospects.”

More broadly in the emerging markets, although they got off to a poor start in 2013, “thanks to cheap valuations as well as higher growth, we still believe they can outperform developed markets for the year,” the BlackRock strategists say.

15 Best Investing Quotes of All Time

Leave a reply

GardeningMy Comments: There are successful investors, and there are unsuccessful investors. Some of them are the same people.

I ran across this list and realized there are nuggets here that my clients and prospective clients might find helpful. We live in an increasingly complex world so finding short, sweet comments from time to time that attempt to simplify what is otherwise a confusing matrix is valuable. Enjoy.

By Ron Pechtimaldjian, AdvisorOne | April 18, 2013

“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” – Warren Buffett

“The stock market is filled with individuals who know the price of everything, but the value of nothing.” – Phillip Fisher

“An investment in knowledge pays the best interest.” – Benjamin Franklin

“In investing, what is comfortable is rarely profitable.” – Robert Arnott

“Bottoms in the investment world don’t end with four-year lows; they end with 10- or 15-year lows.” – Jim Rogers

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” – Robert G. Allen

“Every once in a while, the market does something so stupid it takes your breath away.” – Jim Cramer

“Invest in yourself. Your career is the engine of your wealth.” – Paul Clitheroe

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” – Paul Samuelson

“The individual investor should act consistently as an investor and not as a speculator.” – Ben Graham

“Financial peace isn’t the acquisition of stuff. It’s learning to live on less than you make, so you can give money back and have money to invest. You can’t win until you do this.” – Dave Ramsey

“Know what you own, and know why you own it.”– Peter Lynch

“The four most dangerous words in investing are: ‘this time it’s different.’” – John Templeton

“Wide diversification is only required when investors do not understand what they are doing.” – Warren Buffett

“If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.” – John Bogle

Thought for the Week

Leave a reply

My Comments: I have a relationship with a company in San Diego that is my source for new ideaa and products that fall into the category of Long Term Care and other insurance products that are appropriate for many of my clients.

Each week I get an email from them with a Thought of the Week and from time to time, that thought is well worth sharing with whomever it is who reads my blogs. I KNOW as least several people who do.

Here is what arrived this week with minor editing. Many people these days are concerned about where their money is going to come from 10 – 15 – 20 years from now. This describes a potential source.

From Gene Pastula, CFP

We create dozens of SPIA (Single Premium Income Annuity) illustrations per week but only about 1/3 ever get placed in the clients’ portfolio. Having observed this for a few years now and spoken with many advisors, I have come to the conclusion that it is the advisors who are “waiting for the rates to increase”. In the meantime, their clients are receiving less and less interest or accepting more and more risk than they would like.

The typical SPIA is providing a 6-8% annual income, 70% +/- of which is tax-free. That’s better than bonds and will last a lifetime. It’s a personal pension the give the client the most secure, predictable income from any of the assets in the portfolio. And if you are one of those advisors waiting for rates to go up, keep in mind that increases in interest rates have only a partial correlation to SPIA rates since a high percentage of the income is from principal. The way to get the most total money from the SPIA is to start early and live a long time. Waiting for rates to increase just reduces the total time they will receive the income.

Regarding those Variable Annuities; with the expenses and the portfolio restrictions, you cannot be seriously proposing them for competitive growth if you are also including the guaranteed role-ups and income riders. Index Annuities have the same rollups and guaranteed income for half the cost or less and the client will never see their portfolio go down.

Do you wonder why variable annuity sales are down and index annuity sales are up? Clients are buying the same guarantees you sold them in VAs but prefer the assurances of safety of their money that Index products provide. Call Josh and he will answer your questions.

By the way, the Fed met recently: They are going to continue on their path till unemployment hits 6.5% and inflation slows to 2.5%. They predicted no change in rates till 2015. Then what; you think they are going to jump rates to 6% and destroy all the bondholders in the country? Come on!

The Disclosure Paradox: How Much Information Is Too Much?

Leave a reply

Too much information can be as harmful to retirement plan decisions as too little.

investment choicesMy Comments: Somewhere along the way during my last 40 years in the world of financial services, I read or was told that at some point you have to make a decision. You cannot simply attempt to absorb more and more information and expect to suddenly have a revelation about what to do. And many of us have heard the comment that says “paralysis by analysis.”

I’ve had clients who second guess every single decision made by their investment professionals who live and breathe this stuff 24/7, have lots of staff and mountains of computers and who live and work in New York. How someone in Trenton can expect to replicate their skills is beyond me. But it happens. Typically not for long however as I gently suggest they find a new advisor.

By the way, how many of you have read a mutual fund prospectus from cover to cover? This is what I do for a living, but I’ve never done it. But every client has to acknowledge receipt of such a document, since that implies you have read it cover to cover and your remedies if something goes wrong become severely limited.

By Michael Finke | April 1, 2013

The defined contribution revolution saw employers shift responsibility for funding retirement to employees who weren’t well equipped to become their own pension manager. One easy solution would seem to be information. Give people the right tools and they’ll be better able to select the right investments, the right advisors, and save the right amount of money. But is more information the key to improving retirement security?

New research provides insight into the promise and perils of disclosure as a policy tool. At its worst, disclosure is a waste of time and resources, draining millions of dollars from the financial services industry and achieving few measurable improvements in investor outcomes. At its best, disclosure can instantly achieve efficiency improvements within markets where it’s difficult for investors to assess price or quality.

KNOWLEDGE LIMITS
First, some basic consumer theory. Investors make the best decisions they can but are limited by their knowledge.

Collecting knowledge can be costly. A new employee must select among numerous investment options by reading through fund prospectuses or looking for cues of growth. Most people have made investments in learning a work-related skill in order to earn a living, but they haven’t made an investment in how to be their own pension manager. But creating 300 million pension managers doesn’t sound like a sensible public policy goal.

One way to help workers is to give them the information they need to make better choices. This is the appeal of information policy. If ignorance is the problem, then give them a detailed brochure that contains everything they’d need to know to make a better choice. Unfortunately, consumers may have no idea what to do with this information. And more information makes the problem worse.

There is perhaps no sadder example of failed information policy than the mutual fund prospectus. At an SEC roundtable, Don Phillips, Morningstar’s president of investment research, said that fund prospectuses were “bombarding investors with way more information than they can handle and that they can intelligently assimilate.” To its credit, the SEC tried to streamline the fund prospectus to only the most important information. Unfortunately, research shows that investors given a simplified prospectus still focus the most on fund characteristics that are irrelevant (like past performance) and ignore characteristics that matter (like fees).

Disclosure can even be counterproductive. In a 2011 paper, Sunita Sah, then at Duke University, and George Loewenstein of Carnegie Mellon University found that advisors were more likely to give self-serving advice if they first disclosed a conflict of interest to their client. When an advisor admits to a conflict of interest in a face-to-face transaction, this creates two problems. First, the client now feels that if they don’t accept the recommendation they are admitting they don’t trust the advisor—something that is taboo in human interactions.

The second problem is that the advisor now feels less pressure to make a recommendation that isn’t self-serving. It is as if one can absolve one’s sins by admitting to being a sinner. The authors found that recommendations given by participants in the role of advisor were significantly worse for the consumer if they had to disclose conflicts of interest.

Source: http://www.advisorone.com/2013/04/01/the-disclosure-paradox-how-much-information-is-too?utm_source=dailywire40113&utm_medium=enewsletter&utm_campaign=dailywire

Record U.S. Stocks at Lowest Valuation Since 1980

Leave a reply

USA EconomyMy Comments: Many of my clients are elderly clients. For many, their investment horizon going forward is not 20 years or more. They have little need to take what many of them think of as aggressive steps to grow their money.

On the other hand, good advisors today are encouraging their clients to be more aggressive. There is a pervasive and collective sense that the next 12 to 24 months are going to be very positive months for the stock market. Not that there might not be a 4% correction or two along the way, but nothing that suggests anything like what we saw in 2008-2009.

So this article is yet another that if you believe the world is NOT coming to an end anytime soon, you should put some of your money to work in the stock market. Call me, I have a good solution.

Source: http://www.investmentnews.com/article/20130324/REG/303249997

Even though U.S. stocks more than doubled during the four-year bull market, individual investors’ aversion to equities has left companies in the S&P 500 cheaper than at any record high since 1980.

The S&P 500 rose to an all-time closing high of 1,563.23 March 14, up more than 130% from its 2009 lows.

The index trades at 15.4 times reported profit, below the average 19.9 reached in bull markets since 1962, according to data compiled by Bloomberg.

The Dow Jones Industrial Average erased all losses from the financial crisis March 5 and has gained about 11% this year.

Although individuals have added almost $20 billion to U.S. stock funds so far this year, the amount is just 3.5% of the withdrawals since 2007 and compares with $44 billion placed with fixed-income managers in 2013, according to the Investment Company Institute.

For bulls, the absence of private buyers shows that there is plenty of money to keep the rally going.
Bears contend that the pessimism means the rally is too dependent on Federal Reserve stimulus and will fizzle once central bank support ebbs.

“I was down on the floor of the New York Stock Exchange when the Dow hit its new high, and there weren’t any champagne corks popping or people getting excited,” Michael Holland, chairman and founder of Holland & Co., said March 14.

“Valuations are extremely low. When there’s an absence of really bad news, the path of least resistance is up,” said Mr. Holland, whose firm oversees more than $4 billion.

REACHING RECORDS
The S&P 500 has risen about 9% this year. The Dow industrials were trading above 14,530.11 last Wednesday.
In March, the number of Americans filing for jobless benefits fell to the lowest level in almost two months, retail sales increased more than forecast and the housing market strengthened.

Indexes did give back a bit last week as the euro area imposed a levy on Cypriot bank deposits to reduce the cost of rescuing the nation’s lenders.

About $10 trillion has been added to U.S. share values since the market bottomed on March 9, 2009, during the worst financial crisis in seven decades. Confidence among households was shattered by the S&P 500′s 57% plunge from its October 2007 highs.

Institutions have been the main beneficiaries of the rally.

Individuals drained more than $600 billion from equity mutual funds in the six-year period though 2012 before becoming net buyers in January, data from the ICI show.

Even now, private investors remain skittish, withdrawing an estimated $1.7 billion in the two-week period through March 6 and pushing $10.5 billion into bonds.

“This big rotation from bonds to equities is not in full swing,” Alan Zlatar, who helps oversee $65 billion as head of multiasset class investments at Vontobel Asset Management Inc., said March 13.

“Our clients are seeking returns, and so far most of them have tried to stay within the bond space,” he said. “What speaks in favor of equities is, of course, that the alternatives are extremely pricey.”

Stocks are close to the least expensive ever versus government bonds, as measured by a valuation method favored by former Fed Chairman Alan Greenspan that compares earnings with interest payments.

S&P 500 companies currently generate profit equal to 6.5% of their share prices, about 4.5 percentage points more than yields on 10-year Treasuries.

The average spread in the past 10 years was about 2.5 percentage points, data compiled by Bloomberg show.

The combination of stocks being near all-time highs and declining trading volume indicates that money isn’t coming into the market and that equities are rising because fewer people are selling, according to Murray Roos, co-head of European equities at Deutsche Bank AG.

On average, 2.53 billion shares changed hands in S&P 500 companies each day this year, Bloomberg data show. That compares with 3.59 billion between 2009 and 2012.

“There aren’t sellers. That’s why the equity market is looking fundamentally cheap,” Mr. Roos said.
“We’ve got latent demand for equities,” he said. “We are at the start of a protracted move up in equity markets.”

When to Begin Social Security? Even Advisors Aren’t Sure

Leave a reply

Social SecurityMy Comments: It’s hard for me to understand why this should be a difficult calculation. Until I realize that there are lots of variables in how social security benefits are payable, and the best solution is often a function of how long you live, and whether you and your spouse, assuming you have one, stay together or get divorced. And whether when one of you dies, whether or not there is a former spouse still alive, who may or may not be age 62 or more when your spouse dies. And so on.

The net effect is that it’s difficult to be sure.

By John Sullivan, AdvisorOne | March 28, 2013

Here’s a scary thought; Social Security is the largest source of retirement income for most Americans.

Routinely referred to by politicians and policymakers as a safety net to supplement other sources of retirement income, the sad reality is too many older Americans rely on it outright.

Just as troubling is the apparent confusion over when to begin taking Social Security payments—confusion that extends beyond recipients to the advisors themselves.

A recent paper from David Blanchett, head of retirement research with Morningstar, seeks to dispel that confusion. Blanchett and his team performed three claiming scenarios: receiving benefits early (e.g., at age 62 versus 66); delaying benefits past full retirement age (e.g., age 66 versus 70); and the maximum realistic delay period (e.g., at age 62 versus 70).

The results suggested it’s best not to begin taking benefits early, and if clients do, they should not “play with their own money” by attempting to invest it for a higher return than they would have received by waiting.

“Most retirees would be best served delaying Social Security benefits until at least full retirement age or later, and that delayed benefits are especially valuable for females, married couples, retirees who expect to invest in relatively conservative portfolios during retirement and retirees who have longer life expectancies,” Blanchett reported.

The effective return achieved by a retiree from making the optimal Social Security decision can “significantly exceed the return he or she could potentially earn by investing the money received from starting benefits earlier and ‘investing the difference,’ especially in today’s low interest rate environment,” he added.

Blanchett found the optimal Social Security claiming decision can generate 9.15% more income for a hypothetical retired married couple, which creates an annual equivalent “financial planning alpha” (or gamma) of +0.74% per year.

He also found an investor would likely need to earn an annual nominal compounded rate of return, net of fees, of more than 7% to be better off claiming benefits early.

“Delayed Social Security benefits can enable an investor to effectively achieve a rate of return that is much greater than they are likely to earn in the market,” Blanchett concluded. “Social Security benefits can also provide a valuable hedge against longevity risk and offer a form of protection from the adverse effects of cognitive decline at older ages.”

Clean Electricity from Bacteria? Researchers Make Breakthrough in Race to Create ‘Bio-Batteries’

Leave a reply

My Comments: Why, you ask, do I repost an article that on the face of it has nothing to do with investing money, or financial planning or making sure taxes are minimized.

Well, because many of you are going to be investing money ten, twenty, and thirty years from now. Your lives will change from how things are today, and there will still be some folks whose goal is to take us back to before batteries were invented.

I find all this fascinating, and simply want to share it with as many of you as possible.

Mar. 25, 2013 — Scientists at the University of East Anglia have made an important breakthrough in the quest to generate clean electricity from bacteria.

Findings published today in the journal Proceedings of the National Academy of Sciences (PNAS) show that proteins on the surface of bacteria can produce an electric current by simply touching a mineral surface.

The research shows that it is possible for bacteria to lie directly on the surface of a metal or mineral and transfer electrical charge through their cell membranes. This means that it is possible to ‘tether’ bacteria directly to electrodes — bringing scientists a step closer to creating efficient microbial fuel cells or ‘bio-batteries’.

The team collaborated with researchers at Pacific Northwest National Laboratory in Washington State in the US.

Shewanella oneidensis is part of a family of marine bacteria. The research team created a synthetic version of this bacteria using just the proteins thought to shuttle the electrons from the inside of the microbe to the rock.

They inserted these proteins into the lipid layers of vesicles, which are small capsules of lipid membranes such as the ones that make up a bacterial membrane. Then they tested how well electrons travelled between an electron donor on the inside and an iron-bearing mineral on the outside.

Lead researcher Dr Tom Clarke from UEA’s school of Biological Sciences said: “We knew that bacteria can transfer electricity into metals and minerals, and that the interaction depends on special proteins on the surface of the bacteria. But it was not been clear whether these proteins do this directly or indirectly though an unknown mediator in the environment.

“Our research shows that these proteins can directly ‘touch’ the mineral surface and produce an electric current, meaning that is possible for the bacteria to lie on the surface of a metal or mineral and conduct electricity through their cell membranes.

“This is the first time that we have been able to actually look at how the components of a bacterial cell membrane are able to interact with different substances, and understand how differences in metal and mineral interactions can occur on the surface of a cell.

“These bacteria show great potential as microbial fuel cells, where electricity can be generated from the breakdown of domestic or agricultural waste products.

“Another possibility is to use these bacteria as miniature factories on the surface of an electrode, where chemicals reactions take place inside the cell using electrical power supplied by the electrode through these proteins.”

Biochemist Liang Shi of Pacific Northwest National Laboratory said: “We developed a unique system so we could mimic electron transfer like it happens in cells. The electron transfer rate we measured was unbelievably fast — it was fast enough to support bacterial respiration.”

The finding is also important for understanding how carbon works its way through the atmosphere, land and oceans.
“When organic matter is involved in reducing iron, it releases carbon dioxide and water. And when iron is used as an energy source, bacteria incorporate carbon dioxide into food. If we understand electron transfer, we can learn how bacteria controls the carbon cycle,” said Shi.

The project was funded by the Biotechnology and Biological Sciences Research Council (BBSRC) and the US Department of Energy.